Dutch DSM declares FM on capro production at Geleen

LONDON (ICIS)--DSM has declared force majeure at its 250,000 tonne/year caprolactam (capro) plant in Geleen, the Netherlands, following a fire, a company source said on Friday.

The fire broke out on Tuesday at about 13:00 local time caused by a defective pump. The force majeure was declared on Thursday, the company source said.

Damage to the plant is still being assessed. The force majeure will affect downstream nylon 6 (or polyamide 6) volumes as well as upstream sulphuric acid demand, although the extent of the impact is not yet clear, the company source added.

Views on the impact of the force majeure were divided along buy/sell lines. Buyers said the capro market, the feedstock for nylon 6, is too oversupplied for it to have an impact.

“In Europe [there is] one million tonnes/year consumption of capro, but a production of two million tonnes/year, so if you don't export it's a mess ... On capro [there’s] so much oversupply that a plant can shut for weeks and have no impact,” a capro buyer said.

Capro demand remains weak because poor macroeconomic conditions have limited consumer purchasing power in the major end-use automotive and fibre markets. Coupled with this, low Asian buying interest means there are few opportunities to export. Typically, Asia is a major importer of European capro.

There are concerns that short working weeks in May because of public holidays across Europe will further limit buying interest.

Because of the weak demand, consumer inventory levels are high, providing at least a short-term buffer against the lost capacity, buyers said.

Producers said the capacity is large enough that its absence would be quickly felt.

“It will have a massive impact on capro - they're [DSM] one of the biggest producers in Europe,” a capro producer said.

Producers also said it would place upward pressure on prices in May. “The impact will be considerable and could help to stabilise the price [of capro in May]. In the end it's an important supplier. Only a short-term impact but an important one,” another capro producer said.

Both sides conceded the outage may at least apply psychological upward pressure on prices because of the uncertainty regarding supply.

“The second thing is where the contracts are. If things [April contracts] are not closed then such an announcement will play in favour of the capro producers,” a capro buyer said.

European capro April contracts are broadly settling at a reduction of €20-30/tonne ($26-39/tonne) depending on starting point. Nevertheless, several major European producers remain locked in negotiations, trying to pocket as much of the €62/tonne fall in the upstream benzene contract price as possible.

The physical impact of the DSM outage will depend on the length of the force majeure, European buyers and sellers said.

“It's a little early to make some estimation, because, unfortunately, capro consumption is not at a high rate. Today we can play a little bit with our inventories ... we have quite good inventories. The other question is how long will they be able to resume production,” a capro buyer said.